Exits. The stuff that crowdfunding investor dreams are made of. Or not?
A story we ran recently has prompted us to think more about this topic. It was about the acquisition of Scotty’s Brewhouse, a mini-chain of midwestern brewpubs that is one of the few crowdfunded companies (in this case through Indiana’s intrastate exemption) to have an exit event. An exit is the term of art used for an event—typically an initial public offering (IPO) or an acquisition by a larger company—that unlocks returns for early investors who put up seed capital for a venture.
Exits imply equity. They’re not relevant for debt-based offerings, as Scotty’s was, because debt investors get paid back in regular principal and interest payments, not through an ownership stake in the company. But the Scotty’s deal shows that crowdfunded ventures, including those done through state-based crowdfunding, have the potential to pay off for the crowd.
“We are only brushing the surface of the power of intrastate offerings and stories like Scotty’s help to further highlight the power of this type of local funding,” says Anthony Zeoli, a Chicago-based lawyer and crowdfunding advocate.
More Than Financial Returns
Focusing solely on exits, though, misses a central point about this new era of crowdinvesting. An IPO or listing on a stock exchange is often considered the end game, but for early investors that hang onto their shares, as well as new shareholders, that’s just the beginning. As our list below shows, an exuberant public debut can be short-lived.
And for many investors, the rewards of investing may be just as much social as financial—having a beloved brewpub or restaurant in your neighborhood that otherwise might not exist, for example. Or supporting an entrepreneurial venture that’s addressing environmental issues or social injustice in a novel way. Or filling a community need.
Crowdfunding is brand new, and as it evolves, it will push us to rethink the conventional risk-reward equation. In the meantime, you can pretty much count the traditional exits on one hand, as we’ve done below. Measured on purely financial returns, we’re still waiting for an exit we can hold up as an unalloyed success.
The full and original article can be viewed on Locavesting.com
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